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Silver lining: Canada’s economy still looks good in the long-term
Silver lining: Canada's economy still looks good in the long-term
Business & Finance

Silver lining: Canada’s economy still looks good in the long-term 

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Things may seem bleak to some, but Canada’s situation has to be put into perspective. As commentators have pointed out, the 2019 federal budget came with a lot of unnecessary spending.

In fact, Trudeau’s government is likely to become the highest spending government in this nation’s history, outside of war or recession.

The government promised three deficits of $10B. Instead, the first two deficits were just short of $20B. The exact value of the 2018-19 deficit has not yet been reported, but it was projected at $18.1B. However, there was a sharp increase in government spending in the second half of 2018.

Government spending, quarterly, since January 2000 ($Millions)

The actual deficit for this fiscal year will also be unknown until the government releases its annual financial report. The general upward trend is no surprise, and is partly due to factors such as inflation, population growth, and GDP growth.

Prime ministers since the previous Pierre Trudeau had been working towards stabilizing the nation’s federal budget deficits, before Prime Minister Harper significantly boosted spending in the wake of the 2008 Financial Crisis. It allowed Canada to avoid much of the turmoil from the crisis.

Canadian federal budget deficits/surpluses since 1968, when Pierre Trudeau took office

Most commentators tout the debt-to-GDP ratio as the most illuminating indicator of the debt burden, since it represents the ability of a country to pay back its debt. By this measure, Canada has the 2nd lowest debt burden in the G7 after Germany. It has, however, been on the rise in recent years.

Japan’s famously high debt-to-GDP ratio, for perspective, was a crippling 253% in 2017 and still rising.

Canada’s debt-to-GDP ratio 2006 to 2017

The measure that might be easiest for everyday Canadians to understand is the cost of servicing the debt.

Every year, the government needs to pay the interest that has accrued on its debt. This appears in the budget as public debt charges. A portion of the government’s annual tax revenues go towards paying this interest, after which the government can choose to borrow more.

As of the latest numbers (2016), just over 8 cents of every tax dollar went to the government’s creditors. The good news is that this amount has been decreasing since the Mulroney years.

Debt servicing costs as a percentage of tax revenues, 1985 to 2016

Also, in comparison to GDP, our tax levels have been consistently lower than the OECD average for the last decade and a half.

Tax-to-GDP ratio, Canada vs OECD average, 2000-2017

In these turbulent international times, it can be easy to forget how fortunate we are to face our own problems, rather than those faced by some other countries.

While it is unfortunate that we elected a government that spent so much on this year’s election budget, things could be worse.

We in this country are lucky to have more than one party that, while being less than ideal for our financial future, can hold the economy’s reins for four years without causing its utter destruction.

We had a chance to try out Trudeau’s “sunny ways”, and while it may take a generation to recover, at least it will not have to be a recovery from complete disaster.

Not a single Canadian is worried about finding a successor for Trudeau, and not all countries can say that about their leader.

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